US grain: too big a bargain?
The Reagan administration's joy over booming grain sales to the Soviet Union isn't universal. Two days before the latest sales, US farm export policies came under sharp attack in congressional hearings. Critics charged the administration with subsidizing the Soviets by selling them grain well below the cost of production.Skip to next paragraph
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US officials in Moscow announced Oct. 1 that the Soviets asked for and have been given permission to purchase 23 million tons of US grain over the next 12 months. The US Department of Argriculture expects the Soviets will buy at least 10 million tons in addition to the 7.6 million already purchased. Officials add that the figure may climb to the full 23 million if more put at 180 million tons or 56 million tons below target.
Some private traders espect a Soviet harvest as low as 170 million tons and proportionately greater US grain exports. This would mean extra export earnings beyond the nearly $3 billion brought in by the 17.6 million tons now considered certain.
Meanwhile, a growing chorus in Congress and the farm belt is charging the Reagan administration with throwing away a potential $5 billion to $20 billion by underpricing the 150 million tons of US grain and soybeans exported every year.
Rep. James Weaver (D) of Oregon insists that major importers such as the Soviet Union, Japan, and the European Community are willing and able to pay more for US grain. He says that the world's other main grain exporters (Argentina, Australia, Canada) are urging the United States, as the World's top producer and "price setter," to hike its grain prices.
Congressman Weaver argues that the US has the leverage to "use our grain the way the Arabs use their oil" because "we export 85 percent of all the soybeans, 70 percent of all the corn, and 50 percent of all the wheat traded in world markets."
The Oregon congressman, himself a former commodities trader, says the US is in an ideal position to raise prices because "The Soviet Union has no place to go other than the United States for the huge amounts it needs."
To force a price rise, Weaver has introduced an amendment to the 1981 Farm Bill now before the House to give Secretary of Agriculture John R. Block immediate authority to set a minimum price for US grain exports. This would introduce a two-tier pricing system, setting export prices above domestic prices. Weaver and his congressional cosponsors explain that this would enable US farmers to benefit from overseas grain demand while insulating US consumers from such sudden price increases as happened in 1972 when the Soviets unexpectedly purchased large quantities of US grain.
Weaver also argues that his proposal would cut federal farm-support spending. Instead of US taxpayers bridging the gap between high farm production costs and low farm incomes, increased export earnings would directly support farmers through a government-run "export grain bank."
Don DEichman, a Washington lobbyist for the American Agriculture Movement (AAM), which backs the Weaver bill, explains that an increasing number of farmers now favor the two-tier system -- despite their traditional distrust of government interference. He says that "Opposition comes from fear that if we lose some of the export market from increasing grain prices, we will have a lot grain fall back on the domestic market with price-depressing affects." But the AAM and the National Farmers Union (NFU) figure that there should be a net gain from exporting less at higher prices.
Moreover, NFU spokesman Paul Sacia told conressmen last week that he expects no loss in export market share. Due to US market dominance, he said, "When the US price rises, all the competing exporting countries follow the price upward. When the US price falls, they follow ours down."
Weaver explains that his proposal allows the government complete flexibility in price setting so that it can raise prices "a dime at a time" to test market reaction and ensure maximum return without loss of export tonnage.
The nations's largest farm organization, the American Farm Bureau Federation, opposes the Weaver plan. It argues that the effect of artifically hiked US grain prices would be to "hold an umbrella over our competitors' heads" and "price ourselves out of the world market."
Richard Smith, administrator of the Department of Agriculture's Foreign Agricultural Service, also apposes the Weaver plan. After testifying that "a mandated minimum price would restrict markets and stimulate competition," Mr. Smith told the Monitor that "We have to go out and do everything we can to expand our markets, using what tools we have to try to sell more."
A spokeaman for the giant grain-trading companies argues that the US has increased its share of world grain trade from 50 percent twenty years ago to 63 percent today because of its free-market system. Explaining the traders' opposition to the Weaver plan, he says that the Soviet ability to replace the grain cut off by President Carter's 1980 grain embargo proved once again that "the US needs growth in foreign demand more than most grain importers depend on imports from the United States to meet their needs."
One key argument in favor of the Weaver plan to hike US grain prices is that since most other countries rely on tight government controls, the US must move in the same direction. The grain industry view is that the US should pursue "policies that encourage liberalization and the movement of other countries toward more market-oriented policies rather than let trade-distorting measures that other countries employ force the United States into trade and farm policies that clearly are not in our interests."